Experiences with increasing a construction loan?

Hello,

we are building with an architect. The house construction was carefully calculated with appropriate reserves – actually everything was supposed to be trouble-free – or so we thought. We arranged financing with a large German insurance company and started building.

It started well, with the shell construction being about 10,000 euros more expensive than planned. Over time, it turned out that the architect had completely forgotten partial sums in his calculation (they were on the list but not included in the total) and also neglected some ancillary costs.

Accordingly, money is getting tight. We are currently about 50,000 euros over budget in the replanning phase. I could still cushion this with equity, postpone/cancel the solar system, etc., but if another trade turns out to be more expensive than planned, it will get tight.

That’s why I wanted to ask you about your experiences with increasing a construction loan (about 30-40 thousand euros). Does something like that usually go smoothly? Current loan-to-value ratio for the entire project is about 60% – so 40% equity.

Regards
Roger

I absolutely don’t want to scare you, but we also wanted to quickly refinance something because the money for the outdoor facilities completely slipped through our fingers. We wanted about €20,000. Our starting situation was the same as yours: 60% equity, and a salary well over €4000 net.

Well, we made the calculation without the landlord, unfortunately. Financial advisor gave the green light, even the preliminary inquiry at the bank... green light. It was rejected by the appraisal department. After a long drilling, and one or two escalation levels, we found out the reason: prefab house, no basement in a rural area, and a land reference value that was well below half of what was actually paid. Our house was appraised at almost €100,000 below the purchase price.

We tried at two other banks, but rejection, same reference data. But the reference data is nonsense in reality. Our town has only 1,500 inhabitants, but it has a kindergarten, a farm market, two bakers, a primary school, connection to the bus network, and by car I’m at the employer in Karlsruhe in 15-20 minutes. From downtown Karlsruhe I often needed twice as long.

Well, you can’t do anything about it, so we just postponed everything and are doing it bit by bit now... that works too.

Sometimes you do wonder why banks don’t grant a secure loan. In the first offer we could have gotten €300,000 from the bank, but only took €250,000 because the costs only arose during the course of the house planning... so extra cost for Kfw55 and an additional bay window and a soft water system.

So it depends on the bank and the construction area whether something like this goes smoothly. Generally I would say: yes.

The valuation by the bank is a real problem. They use a market adjustment factor. In good areas (cities, metropolitan regions), the house will always achieve a good price in realization/sale. But if a large and expensive house is located far away ("jwd"), there may be enthusiasts who buy it at a high price. However, the average buyer will think twice about how much they pay. If it is also a prefab house, it becomes even more difficult, since the poor image of houses from the 70s/80s is still in the minds of many people. Years ago, I had clients who had a great house on the Lower Rhine (in the flat countryside), which had lost almost a third of its value a few years after completion when sold.

So, for you, it depends on what the bank (or insurance) does in the valuation.

Wahaaahaaa 3 days... that's nothing. Our bank always took about 3 weeks before responding

Oh, is that normal?

Sad, actually, isn't it? It's not like you don't have things to decide as a home builder ..

Regards
Roger